By Oscar Ramirez
On June 17, 2021, Justice Belobaba released his decision approving the proposed settlement in MacDonald et al. v BMO Trust Company et al. In the decision, Justice Belobaba went over the proposed settlement, which included a term that the first $250,000 in cy-près distributions would be paid to the Class Action Clinic. On October 12, 2021, the Clinic was once more awarded cy-près funds in Romita v Intellipharmaceutics International Inc, a securities case before Justice Morgan. The Clinic will use the funds to further advance its aim of assisting class members. But what is cy-près, and why do some class action settlements give money to charities and other non-profits?
What is a Cy-Près Distribution and What is its Purpose?
In the class action context, a cy-près distribution refers to the disbursement of settlement funds or damage awards to an appropriate substitute for class members. Over the past twenty years, courts developed a general rule, which is now explicit in Ontario’s recently amended class action legislation, that cy-près distributions should not be approved where direct compensation to class members is practicable. When direct compensation of class members proves too expensive or impossible, courts generally prefer that unclaimed portions of funds and awards not revert back to the defendant. Cy-près distributions can be a useful tool in preventing the reversion of funds while presenting a benefit to class members.
Section 27.2 of the Class Proceedings Act, 1992 provides judges with direction as to when a cy-près distribution is appropriate. The section states that cy-près distributionscan be applied to either awarded amounts or settlement funds if the judge is satisfied that it is not practical or possible to compensate class members directly. Historically, cy-près distributions have been used in situations where each class member would receive minimal compensation and the cost to distribute the funds is greater than the compensation itself.
Section 27.2 also addresses who can be the recipient of a cy-près distribution. An appropriate substitute for class members could be a non-profit organization or charity that could reasonably be expected to benefit the class member, directly or indirectly. This part of the section reflects the roots of cy-près in trust law. Cy-près is a truncated form of the phrase “cy-près comme possible,” which means “as near as possible.” In trust law, cy-près applies to moments where carrying out a donor’s intention is impossible, impractical, or infeasible. As a result, the courts apply the concept of cy-près, carrying out the donor’s intent “as near as possible.” Similarly, in the class action context, the cy-près recipient will use the funds to benefit class members “as near as possible” to the goals of the class action. According to the legislation, if there is no appropriate charity or non-profit organization to substitute class members, the cy-près distribution will be made to Legal Aid Ontario. In a previous blog, Clinic student Lauren Tzogas questioned the propriety of designating Legal Aid as the default recipient of cy-près awards.
What Does it Mean for Class Members When the Clinic Receives Cy-Près Funds?
The Class Action Clinic is a not-for-profit organization engaged in a variety of services, ranging from helping class members navigate the complexities of class actions to advancing legal research projects, providing legal education to the public, and advocacy. The Clinic aims to use the cy-près funds in all or some of the following four endeavours.
The Clinic is developing and maintaining a dedicated page on the Clinic website for settlement claim notices. Developing a central repository of notices creates a convenient location for class members to search for notices that might apply to them. Additionally, it can increase the ability of class counsel and claims administrators to reach class members that might not have been reached otherwise. For example, in consumer class actions, it is often not possible to provide direct notice. Having the repository would create further access to settlement information that is important to class members.
The cy-près funds will also be used to maintain the Class Action Database. The Law Commission of Ontario is currently in the final stages of constructing a database that will contain essential information about past and current class actions. The database will also provide valuable information to academics, lawyers, and the judiciary. It will contain information such as the nature of the legal claim, the lawyers on the class action, and the outcome. Once the database has been transferred to the Clinic, it will require continuous updating and maintenance. The cy-près funds will allow for students to be hired year-round to ensure the database is current and accurate.
The past two years of operation have revealed that the unmet needs of class members across Canada are acute and increasing. Stable funding is critical for the Clinic to continue assisting class members. A portion of the cy-près funds will be used to pay the salary of the staff lawyer and the wages of summer law student, to increase the Clinic’s capacity to assist an increasing number of clients.
The cy-près funds will also be used in consumer protection research and advocacy. Class actions quite often intersect with consumer law. With the exception of Quebec, other provinces in Canada have no robust consumer organization solely dedicated to legal information, research, and advocacy on consumer issues. The Clinic intends to use the cy-près funds to scale up operations and partner with other legal and academic institutions to fill the void. Joint research can be performed on many topics such as consumer privacy issues, environmental problems, and consumer contracts.
Cy-près distributions are a useful tool to provide benefits to class members they might not have received otherwise. Additionally, the ability to choose distribution schemes and an appropriate recipient of cy-près distributions can lead to tailored results. As the two recently approved awards to the Clinic illustrate, cy-près funding can be instrumental in creating resources and providing services that help class members in a variety of ways.